Requirement to Correct: disclosure deadline approaching

21 Aug 2018

There is often a lot of confusion surrounding offshore assets. Many people believe that if they do not bring money into the UK, it is not taxable. However, this is only the case for non-domiciled taxpayers.

Another misconception is that the Requirement to Correct (RTC) only applies to those who are evading tax. In fact, the RTC applies to all taxpayers who have undeclared foreign income or profits on offshore assets.

With the RTC 30 September 2018 disclosure deadline approaching, taxpayers must ensure that they have informed HMRC about any offshore tax liabilities they may have. Tax due on offshore assets can be in the form of income tax, capital gains tax (CGT) or inheritance tax (IHT).

Offshore assets and tax liabilities

Offshore assets are any assets held overseas for any reason, and can include art and antiques, bank and other savings accounts, boats and other vehicles, cash, gold, jewellery, land and buildings, life assurance policies and pensions, and shares and trusts, amongst other things.

Any individual who owns or has an interest in assets held offshore, or has a source of income that is offshore, such as rent from property abroad, is potentially affected by the RTC rules. HMRC is urging taxpayers to check that they have declared all tax liabilities that may have arisen as a result of having offshore assets, and to make any necessary corrections before 30 September.

Meanwhile, from 1 October 2018, the Common Reporting Standard (CRS) initiative will come into effect, along with a new, tougher RTC penalty regime. We consider these in detail below.

Taking a look at the CRS

Under the CRS, from 1 October 2018 over 100 countries will be able to exchange data relating to taxpayers’ financial accounts, giving HMRC an ‘enhanced’ ability to detect offshore non-compliance.

The CRS initiative was developed in 2014 by the Organisation for Economic Co-operation and Development (OECD) in order to combat tax evasion and money laundering. It allows the hundreds of countries who have signed up to exchange taxpayers’ financial information. Previously, information could only be shared ‘upon request’.

New penalties

From 1 October 2018, stringent new penalties will be introduced for those who fail to comply with the RTC rules. These penalties will start from a minimum of 100% of the tax owed, although the standard penalty will be equivalent to 200% of the tax liability which should have been disclosed to HMRC. 

For the ‘most serious’ cases, there will be an asset-based penalty of up to 10% of the value of the underlying assets, and further penalties may be due for cases for which HMRC can show that the taxpayer has moved their assets to avoid reporting under the RTC initiative.

Action to take

Taxpayers who have undeclared offshore assets must declare them to HMRC ahead of the 30 September deadline. This can be done in various ways:

  • through the use of HMRC’s digital disclosure service, or the online Worldwide Disclosure Facility
  • by telling an HMRC officer in the course of an enquiry
  • through any other method agreed with HMRC.

With the RTC deadline imminent, now is a good time for your clients to review any offshore tax affairs.

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